If you think deficit-reduction is being driven by John Boehner or Harry Reid, think again. The biggest driver right now is Standard & Poor's.
All of America's big credit-rating agencies -- Moody's, Fitch, and Standard & Poor's -- have warned they might cut America's credit rating if a deal isn't reached soon to raise the debt ceiling. This isn't surprising. A borrower that won't pay its bills is bound to face a lower credit rating.
But Standard & Poor's has gone a step further: It's warned it might lower the nation's credit rating even if Democrats and Republicans make a deal to raise the debt ceiling. Standard & Poor's insists any deal must also contain a credible, bipartisan plan to reduce the nation's long-term budget deficit by $4 trillion -- something neither Harry Reid's nor John Boehner's plans do.
If Standard & Poor's downgrades America's debt, the other two big credit-raters are likely to follow. The result: You'll be paying higher interest on your variable-rate mortgage, your auto loan, your credit card loans, and every other penny you borrow. And many of the securities you own that you consider especially safe - Treasury bills and other highly-rated bonds - will be worth less.
In other words, Standard & Poor's is threatening that if the ten-year budget deficit isn't cut by $4 trillion in a credible and bipartisan way, you'll pay more -- even if the debt ceiling is lifted next week.
With Republicans in the majority in the House, there's no way to lop $4 trillion of the budget without harming Social Security, Medicare, and Medicaid, as well as education, Pell grants, healthcare, highways and bridges, and everything else the middle class and poor rely on.
And you thought Republicans were the only extortionists around.
Who is Standard & Poor's to tell America how much debt it has to shed in order to keep its credit rating?
Standard & Poor's didn't exactly distinguish itself prior to Wall Street's financial meltdown in 2007. Until the eve of the collapse it gave triple-A ratings to some of the Street's riskiest packages of mortgage-backed securities and collateralized debt obligations.
Standard & Poor's (along with Moody's and Fitch) bear much of the responsibility for what happened next. Had they done their job and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn't have become so large -- and their bursts wouldn't have brought down much of the economy.
Had Standard & Poor's done its job, you and I and other taxpayers wouldn't have had to bail out Wall Street; millions of Americans would now be working now instead of collecting unemployment insurance; the government wouldn't have had to inject the economy with a massive stimulus to save millions of other jobs; and far more tax revenue would now be pouring into the Treasury from individuals and businesses doing better than they are now.
In other words, had Standard & Poor's done its job, today's budget deficit would be far smaller.
And where was Standard & Poor's (and the two others) during the George W. Bush administration -- when W. turned a $5 trillion budget surplus bequeathed to him by Bill Clinton into a gaping deficit? Standard & Poor didn't object to Bush's giant tax cuts for the wealthy. Nor did it raise a warning about his huge Medicare drug benefit (i.e., corporate welfare for Big Pharma), or his decision to fight two expensive wars without paying for them.
Add Bush's spending splurge and his tax cuts to the expenses brought on by Wall Street's near collapse -- and today's budget deficit would be tiny.
Put another way: If Standard & Poor's had been doing the job it was supposed to be doing between 2000 and 2008, the federal budget wouldn't be in a crisis -- and Standard & Poor's wouldn't be threatening the United States with a downgrade if we didn't come up with a credible plan for lopping $4 trillion off it.
So why has Standard & Poor's decided now's the time to crack down on the federal budget -- when it gave free passes to Wall Street's risky securities and George W. Bush's giant tax cuts for the wealthy, thereby contributing to the very crisis its now demanding be addressed?
Could it have anything to do with the fact that the Street pays Standard & Poor's bills?
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
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The Biggest Player in the Deficit Battle: Standard & Poor's
This happened to NYC in the late 1970's when the large NY banks wouldn't renew the debt for the city of NY and forced the city into "technical bankruptcy" according to David Harvey in a Brief History of Neoliberalism (p.45) This resulted in roll back of union power, wage cuts and freezes in public employment, education, public health and transportation and a redistribution of wealth upward. Looks like the same industry is playing from the same playbook.
Raise the limit and stop negotiating at knifepoint.
"Put another way: If Standard & Poor's had been doing the job it was supposed to be doing between 2000 and 2008, the federal budget wouldn't be in a crisis -- and Standard & Poor's wouldn't be threatening the United States with a downgrade if we didn't come up with a credible plan for lopping $4 trillion off it."
Best article on HP in several months. Just outstanding Dr. Reich. Tremendous post right on the money.
So Congress, and we the people are being held hostage by Standard and Poor???
So what is it all about? Power and greed! At what expense?
We the people don't stand a chance! And here I thought it was all about repubs vs dems!!
The whole world has run amok! Sanity, as we know it, is gone!
you'll lose your dinner